Zero Company's Standard Factory Overhead Rate Is $3

question 135

Multiple Choice

Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH) , calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead.

Assuming the use of a two-way breakdown (decomposition) of the total overhead variance, what is the factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar) ?

• A) N/A—this variance does not exist under a two-way breakdown of the total overhead variance.
• B) $90 unfavorable.
• C) $150 unfavorable.
• D) $225 favorable.
• E) $425 unfavorable.

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Definitions:

Repurchase Shares

The act of a company buying back its own shares from the marketplace, which can affect the company's stock value and earnings per share.

Weighted Average

A method of calculating an average whereby each component of the dataset contributes to the total average in proportion to its assigned weight.

Cost of Capital

The rate of return that a company must earn on its investment projects to maintain its market value and satisfy its investors.

Leveraged Value

Utilizing a range of financial tools or leveraging debt to amplify the possible gains from an investment.